Another false dawn for U.S. economy, Roach warns

Most economists on Wall Street and at the Federal Reserve think the economy is going to be much improved this year. But this view may be just another case of wishful thinking, said Stephen Roach, one of the most prominent market economists who is now at Yale University.

“My advice is to keep the champagne on ice,” Roach, the former chairman of Morgan Stanley Asia wrote in an op-ed entitled “America’s False Dawn” posted on Project Syndicate.

Roach argues that American consumers are still grappling with high debt burdens.

The debt/income ratio for American households is now down to 109% – well below the peak of 135% reached in late 2007, but still 35 percentage points above the average of the final three decades of the twentieth century, Roach said.

The personal savings rate also remains below past levels.

“By these measures, American consumers’ balance-sheet repair is, at best, only about half-finished,” Roach said.

“Notwithstanding the Fed’s claims that its unconventional policies have been the elixir of economic renewal in the U.S., the healing process still has years to go,” he concluded.

There have been similar bouts of optimism that the economy would shake off its funk, in the summer of 2010 and in the first few months of 2012.